Indian middle-class blues : Economic fallout and more
It is the middle-class that always drives the economy. They now demand the best quality of products and services. Their reduced incomes, as in the present COVID-19 crisis, is bound to be a big problem for the entire country. This article is an attempt to discuss details of the economic fallout and other related issues.
Introduction
The present COVID-19 crisis has affected the entire world. It has affected the richest capitalists and extremely poor people, everywhere in the world. Even the most advanced USA and other rich nations in Europe have been affected. And more than everyone else, the middle-class in all economies and, more so, in India, has taken a big beating, the ramifications of which are likely to be felt over the next 24 months. The implications for the middle-class, in both the short and long-term are sought to be explained in the following paragraphs.
As it turns out, the lock-down may hopefully be lifted in phases, spread over the next six months. However, if the community spread happens when the lock-down is relaxed and the factories start production again, the Government of India may be forced to enforce lock-down again. This can happen for even eight months. This will once again mean less production and less consumption. The same sections of the middle class which are fairly unaffected will be, as always, the Government servants, the bankers, the professional chartered accountants, cost accountants, the corporate company managers, the doctors, the professional counselors (who still offer their services online) and to a large extent, the large pool of IT manpower, who will be forced to work from home.
In light of the aforesaid scenario, it is this relatively wealthy class that will drive the economy. They may spend less, but they will still spend a fairly significant amount of money, as their incomes will not come down drastically. They also have big bank balances to fall back upon. For example, the Government will be very strict with social distancing even in shopping malls. This may mean reduced sales, but the rich who still have a fairly substantial amount of money will go shopping and indulge themselves. This will happen only when the curbs on individual movements are removed, but with social distancing still being enforced.
The sections of the middle-class, as described above will still walk into the likes of KFC and Domino pizza and consume whatever they had missed for some time. The relatively lesser income earning fixed income groups of the middle-class will still buy all the spices and the essential groceries when the movement of lorries starts again. Hence, there will be some movement in the economy. In the private sector, across industries and services, the salaries will be less and there will any number of takers.
Be that as it may, it does turn out that a) Big spending on wants will be reduced drastically b) Reduced demand will mean fewer jobs c) The lower middle class will be hugely affected d) The middle in the spectrum will face big problems and e) Even the professionals will not spend money. Big spending on wants will be reduced drastically
Except for the rich industrialist class, who can safely be holed up in their mansions for as many as 36 months without any problem, every single middle-class Indian will totally give up on wants. Costly vacations abroad will be gone. The costly domestic tours to the most exotic domestic hill stations are likely to be near zero, at least for another twelve months after the scare of the virus is largely gone. Given the uncertainty, the middle-class will find refuge in spirituality and will reduce all expenditures on any luxury. Second-hand sales of cars, motorcycles and even mopeds will happen once again and demand will outstrip supply. Reduced demand will mean fewer jobs
Managements in the IT sector will find out an excuse to freeze jobs. Less demand will mean fewer jobs and this will affect the services sector like never before. For example, if the five-star hotels do not get foreign tourists their revenues will go for a six. Even the unbranded hotels will have less occupancy and this will mean that the hapless unskilled labor from the North Indian States who work in bulk in such establishments for low wages, will be stationed in their native villages for a prolonged time. This will add to social tensions as well. However, there will be a demand for cheaper substitutes, and those offering cheap food, for example, will survive and make some money. Even the comparatively better sections of the middle class will seek refuge in cheaper food options available everywhere. The lower-middle-class will be hugely affected
Simple. If a guy earns Rs.10,000 in Chennai, and lives in the suburbs seventy or more kilometers away and does his daily travel in EMU trains, at 2020 prices, he is one who belongs to the lower-middle-class. The same income can be Rs.18,000 or even Rs.22,000 in Mumbai and New Delhi and those with such incomes would be members of the lower-middle-class. Well, the employers will either employ them at the same wages for the next three years or simply ask them to go.
Those who have some minimum land will still survive, as the rural demand for certain classes of goods will revive after May 2020 and large parts of rural India will be relatively unaffected by the virus. This will also mean that those who live in the towns may try to live in rented houses in the slightly larger villages, that are anyway connected by buses or any other means of transport ( including the shared autos) and seek to reduce the cost of accommodation and also feel safe. This may actually increase in several parts of India. Once again, the smaller Kirana traders can still open their shops and make a little profit, as even with lesser demand, people will still buy the bare minimum essentials that go into their kitchens. However, the fringe players in this class, that is, those earning between Rs.7500 to Rs.10,000 per month at 2020 prices will be left high and dry and will totally depend only on the Public distribution system to merely survive and then once again flock to the Government hospitals, once the virus scare is controlled and the services resume in such hospitals. The middle in the spectrum will face big problems
Those with total incomes of between Rs.35,000 to Rs. 45,000, even when both the husband and wife are earning, will face the music. This class is "neither here nor there" class. For example, if the man is just a commerce graduate with ten years of experience, he will still be earning Rs.32,000/- at current prices and may even have dependent parents to support. Even a small disturbance in the health of any family member will mean a big squeeze on resources.
It is this class that will be vulnerable. They will continuously face problems, and there will be a big mass of people ready to work on lower wages. The employers ( mostly trading companies) will be happy to exploit the situation and the wages will come down drastically. Since the rates of interest on bank deposits are also down, there will be bigger churning in this class, and it will take at least 24 months for this class to find their feet once again. Even the professionals will not spend money
Some four months ago, I was able to see the dining hall of a four-star hotel totally occupied by the ISB and the IIM graduates in Chennai. Many of them had attended some HR conference or the other and were known to me. Their spending was simply unimaginable. Each and every young couple would have at least spent Rs.3000 for dinner. I was satisfied to spend one fourth that amount, with another friend of mine. This happened in January 2020.
Today, the same guys who work from home, are a worried lot. No one knows what will happen. Today, they are sure that they will not holiday abroad, as originally planned. One such person, a senior manager with a famous Indian multinational group in their financial services business, has struck a deal with one NRI fellow to sell his flat at Hyderabad. Reason? He is insecure and wonders if his wife will lose her job with a supply chain organization, that has taken a big beating. Fortunately, the NRI has enough resources.
This is exactly what will happen to many professionals. Even IIM and ISB professionals are now feeling insecure. This trend will continue for another 36 months and much will depend on how the global demand picks up speed in the next eighteen months. Conclusion
The present COVID-19 crisis is similar to the ones that happened in 2001 and 2008. The global economic order has been badly affected. The middle-class in India will also be affected. Once again, the rural consumption of essential goods can happen once the harvesting season begins and the monsoon sets in. This will be key to the revival of the Indian economy. Some dimensions of the likely scenarios have been explained in the aforesaid paragraphs.